Patent holdup occurs when a patent holder extracts higher royalties ex post than it could have negotiated ex ante, where the difference is not explained by an increase in the technology’s value. To date, the literature principally has focused on—indeed, sometimes conflated—two potential sources of holdup: the sunk costs the user has incurred ex ante to adopt the technology, and the “switching costs” of adopting an alternative ex post. This paper holds that the common source of holdup is neither sunk nor switching costs as such, but rather path dependence – and in particular the opportunistic exploitation of path dependence effects that magnify the value of the patented invention relative to the best available alternative. The paper, which can be found here, is structured as follows: Part II discusses the prior literature on patent holdup, along with the early literature on path dependence. Many commentaries on patent holdup confuse two important concepts – sunk and switching costs. A reader may reasonably…

As the title indicates, this paper argues that patent hold-up, as courts and commentators define the term, does not undermine the competitive process and thus cannot give rise to a valid antitrust claim, at least in the US. The paper is available here and is structured as follows: Part II describes patent hold-up and sets out the economic framework employed by many antitrust intervention advocates. A relatively recent phenomenon is that important standards are encumbered by many—perhaps thousands—of Standard Essential Patents (SEPs). “Inventors” own SEPs and grant licences to them, while “implementers” manufacture or sell standard-compliant components or devices. Antitrust intervention advocates argue that these sunk costs permit inventors to engage in “opportunism” by demanding royalties that could “capture part of the fruits of another’s investment,” i.e., part of the sunk investment of implementers. This “opportunistic” behaviour by inventors is what generally is meant by the term “patent hold-up.” Out of a conviction that inventor opportunism is a serious problem, advocates of…

This paper criticises the longstanding debate about patent holdup – and particularly about whether it is a systemic issue. In short, the paper argues that the ongoing hunt for empirical evidence of systemic patent hold-up in standardised product markets, or lack thereof, is a fruitless academic exercise. The paper can be found here and is structured as follows: Part I offers some essential background on standard setting and standards-essential patents. As I am sure we are now all fed up with this, I will skip it. Part II explores the interrelated questions that form the core of the current hold-up debate: how is hold-up defined, and what can empirical evidence tell us about hold-up in today’s technology-driven markets? The notion of economic hold-up originated with Oliver Williamson’s leading work on transaction costs and information asymmetry in the 1980s. The owners of specific assets are vulnerable to opportunistic behaviour by potential transaction partners who act dishonestly (e.g., by using deceptive means to…

This working paper, which can be found here, seeks to understand what happens when standard essential patents (SEPs) are litigated in court. The authors find that, contrary to expectations, courts are more likely to find that SEPs are valid patents than a matched set of litigated non-SEP patents. However, courts are also significantly less likely to find that SEPs were infringed. One of the reason for this seems to be that many SEPs are asserted in court by non-practicing entities (NPEs), and NPEs do much worse in court than other patent holders. This has interesting implications for policy debates about both SEPs and NPEs. Standard-essential patents may not be so essential after all, perhaps because companies tend to err on the size of over-disclosing patents to standard-setting organisations. On the other hand, the failure of NPEs to win cases concerning the validity of what are, prima facie, a strong set of patents raises interesting questions about the role that NPEs play…

The task of the book to which this chapter belongs is to provide an annual practical overview of developments on the relationship between antitrust and intellectual property. This chapter, which can be found here, describes the competition / IP law interface in Europe. It is structured as follows: Section II is devoted to a review of developments that took place in 2017. The section begins with a succinct description of the Google cases, before turning to a discussion on standard essential patents (SEPs). It also reviews the European Commission’s Communication on ‘Setting out the EU approach to Standard Essential Patents’. The paper then briefly discusses e-commerce. It begins by mentioning the ECJ’s Coty decision and the Policy Brief prepared by the European Commission concerning this judgment. This Brief states that Coty provides more clarity and legal certainty to market participants by confirming previous case law and establishing a clear legal framework for online commerce. The paper also mentions the Commission’s e-commerce sector…

In the US, there have been antitrust enforcement efforts against various pharmaceutical practices that elevate price above the competitive level, such as reverse payments (or pay-for-delay), product hopping, and collusion among generic drug manufacturers. However, the conventional wisdom is that U.S. antitrust laws do not forbid high prices simpliciter. This paper argues that the conventional wisdom may be mistaken: Section 1 engages in a general discussion of the problem of high prices and provides two examples of a non-antitrust approach to this problem. The standard antitrust/welfare economics paradigm condemns high prices at least on the grounds of resource misallocation and deadweight welfare loss. Many scholars go beyond deadweight welfare loss concerns, condemning monopoly pricing because of the redistribution of the consumer surplus from consumers to producers, but some are indifferent to this redistribution. There is an additional argument that can be made against high prices, but it is one to which antitrust is often indifferent: high prices can be seen…

This paper, which can be found here, compares Unwired Planet/Huawei – a UK case reviewed here, and which appeal was discussed last week – and TCL/Ericsson, a US case. TCL deals with Ericsson-owned SEPs and Ericsson-granted licences, while Unwired Planet focuses on SEPs acquired by Unwired Planet from Ericsson. While looking at similar sets of facts, the courts arrived at different conclusions regarding how to determine FRAND royalty rates. This paper argues that this difference arises from the courts’ take on two core approaches in FRAND royalty calculation – “top-down” and “comparable prior licences” (‘Comparables’). Unwired Planet can be said to have favoured a ‘Comparables’ approach, while TCL looks more favourably at the top-down approach. The paper contends that both methods are important in FRAND licensing, it is unlikely that either a top-down or Comparables approach will – or should – prevail as the obviously best approach to complex cases. The paper is structured as follows: Section II provides the…

This article, which can be found here, proposes a novel approach for calculating FRAND royalties, based upon average total cost per patent plus a reasonable return for the patent holder. Unlike the methods discussed in the paper above – which focus on the value of a patent – this method is cost-based. The paper is structured as follows: An introductory section explains why standards are important and why FRAND obligations are imposed. A significant increase in the relevance of standards can be predicted in the near future. Industry 4.0 will greatly increase the degree to which industrial processes will depend upon the exchange of information not only between people, but also between toolkits, that is, between “hardware.” The same holds true for a number of new technologies such as autonomous driving, data compression, or 3D printing. Standard-setting organizations (SSOs) are tasked with the development and creation of standards by identifying and selecting the most suitable technologies for the standard. It goes…

This post will discuss a summary judgment by a district court in California – the one responsible for most cases in Silicon Valley – on whether Qualcomm’s refusal to license its Standard Essential Patents (SEPs) to competitors infringed the non-discrimination limb of RAND commitments and, by extension, s. 5 of the FTC Act. The decision is available here. Background Cellular communications depend on widely distributed networks that implement cellular communications standards. These standards promote availability and interoperability of standardized products regardless of geographic boundaries. Standard-setting organizations (“SSOs”) – such as the Telecommunications Industry Association (“TIA”) and the Alliance for Telecommunications Industry Solutions (“ATIS”) in the United States, and the European Telecommunications Standards Institute (“ETSI”) in Europe – have emerged to develop and manage the relevant cellular standards. The cellular communications standards that SSOs develop and adopt may incorporate patented technology. In order to prevent the owner of a patent essential to complying with the standard—the “SEP holder”—from blocking implementation of…

This judgment – which can be found here – is on appeal from Unwired Planet v Huawei judgment on the licensing of Standard Essential Patents (SEP) that I reviewed here. The Court of Appeal begins by explaining the link between the potential for anticompetitive abuse of SEPs and the imposition of FRAND licensing terms. After all: ‘the potential for anti-competitive behaviour is obvious. The owner of a SEP has the potential ability to “hold-up” users after the adoption and publication of the standard either by refusing to license the SEP or by extracting excessive royalty fees for its use, and in that way to prevent competitors from gaining effective access to the standard and the part of the telecommunications market to which it relates.’ It then moves on to review the factual background of the case and the High Court’s decision. In short, Unwired Planet acquired patents from Ericson that cover many of the foundational technologies that allow mobile devices…